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Quote of the Day

[Sir John] Templeton’s sometime partner, Vance, then an elderly man, used to enjoy lecturing about investments. Part of his kit was a huge chart plotted on a roll of wrapping paper… This chart plotted the market for the previous twenty years. Then there were different squiggly lines representing the various factors that influence it—industrial production, money supply, and so on.

One squiggly line was best of all. It worked perfectly. Year after year if you had followed it you could have known where the market was headed and made a killing. When the audience, fascinated, demanded to know what it represented, Mr. Vance told them.

It was the rate his chickens were laying, in the chicken coop behind his house.

–John Train, The Money Masters

May 9th – This Day in Stock Market History

May 9th, 1901 – The attempt to corner the market of Northern Pacific Railroad by E.H. Harriman reaches its climax as J.P Morgan is also desperately buying shares to avoid Harriman’s attempt to own the majority of shares outstanding.

The shares, which traded at $100 just a few days prior and $180 the day before, are over $400 within an hour of the market opening. By noon shares trade at $700 and by 2pm shares are at $1,000. As shares rose, the general stock market collapses as all other securities are being sold to raise cash, The Dow Jones Industrial Average would close down more than 6%.

Why such panic from a stock simply going up? Due to the exchange rules at the time, short sellers of the shares had to have share certificates in hand at 2:15. As the price of Northern Pacific rose toward $1,000 per share, many short sellers faced ruin and had to liquidate all their holdings just to raise cash to cover their Northern Pacific short position.

North Pacific Stock chart 1901
Chart of Northern Pacific stock (Source: Global Financial Data)

A few minutes before 2:15, in an attempt to avoid panic, brokers announce plans to not enforce that rule on Northern Pacific shares that day.

Shares of Northern Pacific then collapsed to $300 by the market close. At 5pm J.P. Morgan conceded and announced that would provide shares to short sellers at $150. E.H. Harriman would be given control and board seats on Morgan owned Burlington Railroad.

Source: Eyewitness to Wall Street

newspaper_cover_1
newspaper_cover_panic_of_1901

May 9th, 1940 – As Germany invades France, US stock markets decline rapidly. May 9th would prove a high for US stock markets for the next four and a half years, with a close of 148.17 for the Dow Jones Industrial Average.

U.S. stock markets would decline 25% over the next few weeks, falling to 113.94 on May 24th.

Chart from Macrotrends
Chart from Macrotrends

Source: Panic on Wall Street: A History of America’s Financial Disasters

May 9th, 1996 – One of the most spectacular examples of stock ramping in American history. Shares of Comparator Systems, a fingerprint ID company with net assets less than $2 million, sees its shares go from 6 cents to $1.875, giving it a $1 billion market cap.

On this day 177 million shares of Comparator were traded, a record for any individual company at the time (The previous record for volume was held by Intel, with 86 million shares traded).

The SEC would shut down trading of the stock and investigate the company, eventually leading to charges of defrauding investors. The company’s shares would be de-listed from the NASDAQ on June 12th, 1996.

New York Times coverage of Comparator Systems trading
New York Times coverage of Comparator Systems trading

Best May 9th in Dow Jones Industrial Average History

1938 – Up 1.89%, 2.22 points

 

Worst May 9th in Dow Jones Industrial Average History

1901 -Down 6.05%, 3.17 points

Read of the Day:

Warren Buffett 1997 Letter to Shareholders:

“So smile when you read a headline that says “Investors lose as market falls.” Edit it in your mind to “Disinvestors lose as market falls — but investors gain.” Though writers often forget this truism, there is a buyer for every seller and what hurts one necessarily helps the other. (As they say in golf matches: “Every putt makes someone happy.”)

We gained enormously from the low prices placed on many equities and businesses in the 1970s and 1980s. Markets that then were hostile to investment transients were friendly to those taking up permanent residence. In recent years, the actions we took in those decades have been validated, but we have found few new opportunities. In its role as a corporate “saver,” Berkshire continually looks for ways to sensibly deploy capital, but it may be some time before we find opportunities that get us truly excited.”

A complete collection of Buffett’s annual letters are also available: Berkshire Hathaway Letters to Shareholders, 2017

<– Go To Previous Day: May 8th: 1996 – Berkshire Hathaway announces new “Class B” shares.

Go To Next Day: May 10th, 1999: TheStreet IPOs as the tech bubble inflates further–>